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May 27, 2005

Passage to Israel

Justin Hibbard

As U.S. VCs increasingly look abroad for investments, a curious phenomenon is developing: the foreign junket. Maybe VCs have always participated in tour groups, and I'm just now discovering them. But it seems like every few months a delegation of VCs is boarding a plane to China, India, Russia, or some other foreign land to press flesh, sample local cuisine, see archeological sites, and, oh yeah, learn about investing opportunities. The latest is the second annual VC Mission to Israel.

On June 6, representatives from more than 25 U.S. VC firms and limited partners will travel to Israel for four days of sightseeing and meetings with business and political leaders. Among the travelers will be delegates from New Enterprise Associates, Menlo Ventures, Onset Ventures, Accel Partners, Softbank Capital Partners, Sigma Partners, Wilshire Associates, and Swiss Re. They'll hobnob with former Israeli prime minister Shimon Peres, Israeli vice prime minister Ehud Olmert, and governor of the Bank of Israel Stanley Fisher. Also on the agenda are meetings with such Israeli VC firms as Carmel Ventures, Israel Seed Partners, and Gemini Israel Funds. The trip is underwritten by the California Israel Chamber of Commerce, VC firm Lightspeed Venture Partners, Silicon Valley Bank, Ernst & Young, and law firm Pillsbury Winthrop Shaw Pittman. (Holy listomania!)

"We're trying to promote the investment opportunity in Israel and the entrepreneurial spirit so more U.S. VCs will invest in Israel," says Isaac Applbaum, a partner at Lightspeed who is helping organize the trip. Not that U.S. VCs aren't already investing in Israel. Of the US$350 million in venture funding that Israeli tech companies raised last quarter, 38% of it came from foreign investors, according to the Israel Venture Capital Research Center. Several top-tier U.S. VC firms--including Sequoia Capital, Benchmark Capital, and Greylock--have partners or affiliated funds in Israel.

Yet some U.S. VCs still have reservations about investing in the country. In the past, they were often worried about security. "That's much less a concern now," says Applbaum, noting the progress of the recent peace process between Israel and the Palestinians. Others fret about how cultural differences, geographic distance, and time-zone differences will affect their ability to manage their investments. "Israelis work 18 hours a day, so you can talk to them pretty much any time," Applbaum says.

Unlike China and India, Israel doesn't offer cheaper labor and lower costs than the U.S. But with a highly educated engineering workforce, it can provide creativity, inventiveness, and rapid development. Security and software have always been hot sectors in Israel. Recently, fields like nanotech and electronic design automation have begun flourishing, too. Delegates on the VC Mission to Israel will learn all about that stuff--in between sampling Israeli wine and visiting the Western Wall.

12:09 PM


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